<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from ________________ to ____________________________
Commission File Number 333-26853
---------
CCA HOLDINGS CORP.
------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1720013
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12444 Powerscourt Drive - Suite 400
St. Louis, Missouri 63131
- --------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (314) 965-0555
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
- -
<PAGE> 2
CCA HOLDINGS CORP.
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
INDEX
-----
Page
----
Part I. Financial Information
<S> <C> <C>
Item 1. Consolidated Financial Statements:
CCA Holdings Corp. and Subsidiaries
a. Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 3
b. Consolidated Statements of Operations - Three Months Ended
March 31, 1998 and 1997 5
c. Consolidated Statement of Shareholders' Investment (Deficit)- Three Months Ended
March 31, 1998 6
d. Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998
and 1997 7
e. Notes to Consolidated Financial Statements 9
Separate financial statements of CCA Acquisition Corp., Cencom Cable Entertainment,
Inc. and Charter Communications Entertainment, L.P. are included as Exhibits to this
report. Each of these three entities are guarantors of the Senior Subordinated Notes due
1999 issued by CCA Holdings Corp.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Change in Securities - None -
Item 3. Defaults upon Senior Securities - None -
Item 4. Submission of Matters to a Vote of Security Holders - None -
Item 5. Other Information - None -
Item 6. Exhibits and Reports on Form 8-K 19
Signature Page 20
</TABLE>
2
<PAGE> 3
CCA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 580,306 $ 2,595,272
Accounts receivable, net of allowance for doubtful accounts of
$467,033 and $454,097, respectively 4,722,532 5,305,049
Prepaid expenses and other 883,246 754,073
------------ ------------
Total current assets 6,186,084 8,654,394
------------ ------------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, net 206,371,820 204,645,667
Franchise costs, net of accumulated amortization of $95,972,743 and
$87,601,155, respectively 407,052,272 414,800,499
------------ ------------
613,424,092 619,446,166
------------ ------------
OTHER ASSETS, net 9,482,132 10,472,734
------------ ------------
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS 65,053,843 67,814,141
------------ ------------
$694,146,151 $706,387,435
============ ============
</TABLE>
(Continued on the following page)
3
<PAGE> 4
CCA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ---------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' INVESTMENT (DEFICIT)
--------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 27,725,000 $ 25,625,000
Accounts payable and accrued expenses 24,392,208 23,897,249
Subscriber deposits 443,633 452,642
Payables to manager of cable television systems 854,442 1,014,710
------------ -------------
Total current liabilities 53,415,283 50,989,601
------------ -------------
DEFERRED REVENUE 2,345,658 1,465,287
------------ -------------
DEFERRED INCOME TAXES 55,500,000 55,500,000
------------ -------------
LONG-TERM DEBT, less current maturities 431,788,750 437,295,000
------------ -------------
DEFERRED MANAGEMENT FEES 4,036,987 4,036,987
------------ -------------
NOTES PAYABLE 82,000,000 82,000,000
------------ -------------
ACCRUED INTEREST ON NOTES PAYABLE 40,784,293 36,919,412
------------ -------------
MINORITY INTEREST IN SUBSIDIARY 74,833,676 78,082,289
------------ -------------
SHAREHOLDERS' INVESTMENT (DEFICIT):
Class A Voting Common Stock, $.01 par value, 100,000 shares authorized; 75,515
shares issued and outstanding 755 755
Class B Voting Common Stock, $.01 par value, 20,000 shares authorized; 4,300
shares issued and outstanding 43 43
Class C Non-Voting Common Stock, $.01 par value, 5,000 shares authorized; 185
shares issued and outstanding 2 2
Additional paid-in capital 79,999,200 79,999,200
Accumulated deficit (130,558,496) (119,901,141)
------------ -------------
Total shareholders' investment (deficit) (50,558,496) (39,901,141)
------------ -------------
$694,146,151 $ 706,387,435
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
4
<PAGE> 5
CCA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
SERVICE REVENUES:
Basic service $30,121,877 $27,109,207
Premium service 4,852,505 5,002,997
Other 9,606,396 8,374,530
------------ ------------
44,580,778 40,486,734
------------ ------------
EXPENSES:
Operating, general and administrative 22,364,684 20,664,445
Depreciation and amortization 18,877,166 15,218,022
Management and financial advisory service fees - related parties 1,359,421 1,331,232
------------ ------------
42,601,271 37,213,699
------------ ------------
Income from operations 1,979,507 3,273,035
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 93,110 1,154
Interest expense (13,218,287) (12,894,299)
Other, net -- 56,921
------------ ------------
(13,125,177) (12,836,224)
------------ ------------
Loss before equity in loss of unconsolidated limited partnerships,
provision for income taxes and minority interest in loss of
subsidiary (11,145,670) (9,563,189)
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS (2,760,298) (1,909,926)
------------ ------------
Loss before provision for income taxes and minority interest in loss
of subsidiary (13,905,968) (11,473,115)
PROVISION FOR INCOME TAXES -- --
------------ ------------
Loss before minority interest in loss of subsidiary (13,905,968) (11,473,115)
MINORITY INTEREST IN LOSS OF SUBSIDIARY 3,248,613 2,715,214
------------ ------------
Net loss $(10,657,355) $ (8,757,901)
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
CCA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 800 $ 79,999,200 $(119,901,141) $ (39,901,141)
Net loss -- -- (10,657,355) (10,657,355)
----- ----------- ------------- -------------
BALANCE, March 31, 1998 $800 $79,999,200 $(130,558,496) $(50,558,496)
===== =========== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE> 7
CCA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,657,355) $(8,757,901)
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization 18,877,166 15,218,022
Amortization of debt issuance costs 305,267 279,234
Equity in loss of unconsolidated limited partnerships 2,760,298 1,909,926
Minority interest in loss of subsidiary (3,248,613) (2,715,214)
Changes in assets and liabilities, net of effects from acquisitions-
Accounts receivable, net 582,517 1,252,165
Prepaid expenses and other (129,173) (411,422)
Other assets -- (67,772)
Accounts payable and accrued expenses 494,959 (4,163,691)
Subscriber deposits (9,009) 16,832
Payables to manager of cable television systems, including deferred
management fees (160,268) (97,490)
Deferred revenue 880,371 351,895
Accrued interest on note payable 3,864,881 3,407,508
------------ -----------
Net cash provided by operating activities 13,561,041 6,222,092
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,075,285) (7,964,230)
Other investing activities (94,472) (175,273)
------------ -----------
Net cash used in investing activities $(12,169,757) $(8,139,503)
------------ -----------
</TABLE>
(Continued on the following page)
7
<PAGE> 8
CCA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit and term loan facility $ 4,500,000 $ 3,700,000
Payments under revolving credit and term loan facility (7,906,250) (3,700,000)
------------ ------------
Net cash used in financing activities (3,406,250) --
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,014,966) (1,917,411)
CASH AND CASH EQUIVALENTS, beginning of period 2,595,272 2,934,939
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 580,306 $ 1,017,528
============ ============
CASH PAID FOR INTEREST $ 8,021,758 $ 7,657,603
============ ============
CASH PAID FOR TAXES $ -- $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE> 9
CCA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
CCA Holdings Corp. (CCA Holdings), a Delaware corporation, was formed on
November 17, 1994. CCA Holdings commenced operations in January 1995 in
connection with consummation of the Crown Transaction (as defined below). The
accompanying consolidated financial statements include the accounts of CCA
Holdings; its wholly-owned subsidiary, CCA Acquisition Corp. (CAC); CAC's
wholly-owned subsidiary, Cencom Cable Entertainment, Inc. (CCE); and Charter
Communications Entertainment I, L.P. (CCE-I), which is controlled by CAC through
its general partnership interest (collectively referred to as the "Company").
CCA Holdings is owned approximately 85% by Kelso Investment Associates V, L.P.,
an investment fund, together with an affiliate (collectively referred to as
"Kelso" herein) and certain other individuals and approximately 15% by Charter
Communications, Inc. (Charter), manager of CCE-I's cable television systems. All
material intercompany transactions and balances have been eliminated.
In January 1995, CAC completed the acquisition of certain cable television
systems from Crown Media, Inc. (Crown), a subsidiary of Hallmark Cards,
Incorporated (the "Crown Transaction"). On September 29, 1995, CAC and CCT
Holdings Corp. (CCT Holdings), an entity affiliated with CCA Holdings by common
ownership, entered into an Asset Exchange Agreement whereby CAC exchanged a 1%
undivided interest in all of its assets for a 1.22% undivided interest in
certain assets to be acquired by CCT Holdings from an affiliate of Gaylord
Entertainment Company, Inc. (Gaylord). Effective September 30, 1995, CCT
Holdings acquired certain cable television systems from Gaylord. Upon execution
of the Asset Purchase Agreement, CAC and CCT Holdings entered into a series of
agreements to contribute the assets acquired under the Crown Transaction to
CCE-I and certain assets acquired in the Gaylord acquisition to Charter
Communications Entertainment II, L.P. (CCE-II). As a result of entering into
these agreements, CCA Holdings owns a 55% interest and CCT Holdings owns a 45%
interest in the operations of CCE-I and CCE-II, respectively. CCA Holdings
investment in CCE-II is accounted for by the equity method.
The accompanying unaudited financial statements of CCA Holdings have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements are unaudited; however, in the opinion of
management, such statements include all adjustments necessary for a fair
presentation of the results for the periods presented. The interim financial
statements should be read in conjunction with the financial statements and notes
thereto as of and for the year ended December 31, 1997. Interim results are not
necessarily indicative of results for a full year.
9
<PAGE> 10
3. INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS:
Summary financial information of CCE-II for the three month periods ending March
31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
--------- ---------
1998 1997
---- ----
<S> <C> <C>
Service revenues $24,544,816 $22,669,563
Income (loss) from operations (663,180) 582,859
Net loss $(5,018,723) $(3,472,593)
</TABLE>
As of March 31, 1998, CCE-II provided cable television service to approximately
173,200 basic subscribers in southern California.
4. LITIGATION:
CCE-I is a named defendant in a purported class action lawsuit (the "Action")
filed in October 1995 on behalf of the Cencom Cable Income Partners, L.P. (CCIP)
limited partners. The Action named as defendants the general partner of CCIP,
the purchasers of all the systems previously owned by CCIP (which includes CCE-I
and certain other entities managed by Charter), Charter and certain individuals,
including the directors and executive officers of the general partner of CCIP.
On February 15, 1996, all of the plaintiff's claims for injunctive relief were
dismissed (including that which sought to prevent the consummation of the CCIP
Acquisition); the plaintiff's claims for money damages which may have resulted
from the CCIP Acquisition remain pending. Based upon, among other things, the
advice of counsel, each of the defendants in the Action believe the Action to be
without merit and is contesting it vigorously. In October 1996, the plaintiff
filed a Consolidated Amended Class Action Complaint (the "Amended Complaint").
The general partner of CCIP believed that portions of the Amended Complaint are
legally inadequate and in January 1997, filed a dispositive motion as to all
remaining claims in the Action. In October 1997, the court granted in part, and
denied in part, defendants motion for summary judgment, the effect of which
narrowed the remaining issues significantly. The plaintiffs filed a motion to
alter or amend the court order. There can be no assurance, however, that the
plaintiff will not be awarded damages in connection with the Action, some or all
of which may be payable by CCE-I.
CCE is a named defendant in two actions involving Cencom Cable Income Partners
II, L.P. (CCIP II), a public limited partnership. In April 1997, a petition was
filed, and two amended petitions subsequently filed, by plaintiffs who are
limited partners of CCIP II against Cencom Properties II, Inc., the general
partner of CCIP II, Cencom Partners, Inc., the general partner of Cencom
Partners, L.P. (CPLP), an entity in which CCIP II invested, certain named
brokerage firms involved in the original sale of the limited partnership units
and CCE. CCE provided management services to both CCIP II and CPLP and also
owned all of the stock of the general partners of each of these partnerships
prior to mid-1994. The plaintiffs allege that the defendants breached fiduciary
duties and the terms of the CCIP II partnership agreement in connection with the
investment in CPLP, the management of certain CCIP II assets and the sale of
certain CCIP II assets. By an agreement between the parties, the brokerage
defendants and fraud allegations were dismissed without prejudice. The
plaintiffs seek recovery of the consideration paid for their partnership units,
restitution of all profits received by the defendants in connection with the
CCIP II transaction and punitive damages. In June 1997, a purported class action
was filed on behalf of the partners of CCIP II against Cencom Properties II,
CCE, Charter, certain other entities managed by Charter and certain individuals,
including officers of Charter or Cencom Properties II. The plaintiffs allege
that the defendants breached fiduciary duties and the terms of the CCIP II
partnership agreement in connection with the investment in CPLP, the management
of certain CCIP II assets and the sale of certain CCIP II assets. In November
1997, the plaintiffs amended their complaint to restate their allegations as a
shareholders' derivative claim. The damages claimed by the
10
<PAGE> 11
plaintiffs are as yet unspecified. CCE believes that it has meritorious defenses
in both actions and intends to defend the actions vigorously. CCE is not able at
this stage to project the expenses which will be associated with the actions or
to predict any potential outcome or financial impact.
In October 1997, a purported class action was filed under the name Gerald
Ortbals v. Charter Communications, on behalf of all persons residing in Missouri
who are or were residential subscribers of CCE-I cable television service, and
who have been charged a processing fee for delinquent payment of their cable
bill. The action challenges the legality of CCE-I's processing fee and seeks
declaratory judgment, injunctive relief and unspecified damages. CCE-I believes
the lawsuit to be without merit and intends to defend the action vigorously.
CCE-I is not able, at this early stage, to project the expenses which will be
associated with this action or to predict any potential outcome or financial
impact.
The Company is also a party to lawsuits which are generally incidental to its
business. In the opinion of management, after consulting with legal counsel, the
outcome of these lawsuits will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
11
<PAGE> 12
CCA HOLDINGS CORP. AND SUBSIDIARIES
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Significant Transactions
CCA Holdings Corp. and its subsidiaries (collectively the "Company" ) have
completed the following acquisitions of cable television systems:
<TABLE>
<CAPTION>
Approximate
Acquisition Date Purchase Price Location of Systems
---------------- -------------- -------------------
<S> <C> <C>
January 1995 $ 488.2 million Missouri, Connecticut
October 1995 $ 96.0 million Missouri, Massachusetts
January 1996 $ 9.4 million Missouri
March 1996 $ 82.1 million Illinois
November 1996 $ 24.2 million Missouri
</TABLE>
As of March 31, 1998, the Company had no pending acquisitions. On April 30,
1998, the Company sold certain cable television systems in Illinois that served
approximately 570 basic subscribers for approximately $725,000. Following the
completion of this sale, the Company has no other pending transactions to sell
assets.
Results of Operations
The following table sets forth the approximate number of basic subscribers and
premium subscriptions of the Company as of the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
------------------ ---------------- ----------------
<S> <C> <C> <C>
Basic Subscribers:
Missouri/Illinois systems 234,200 231,500 224,200
Connecticut/Massachusetts systems 119,200 118,800 115,300
------- ------- -------
353,400 350,300 339,500
======= ======= =======
Premium Subscription Units:
Missouri/Illinois systems 117,500 120,400 126,000
Connecticut/Massachusetts systems 91,600 59,500 58,400
------- ------- -------
209,100 179,900 184,400
======= ======= =======
Homes Passed:
Missouri/Illinois systems 405,100 403,500 397,200
Connecticut/Massachusetts systems 141,200 141,000 139,100
------- ------- -------
546,300 544,500 536,300
======= ======= =======
</TABLE>
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<PAGE> 13
The following table sets forth certain items in dollars (in thousands) and as a
percentage of service revenues for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
(Unaudited)
1998 1997
------------------------------ ------------------------------
% of % of
Amount Revenue Amount Revenue
------ ------- ------ -------
<S> <C> <C> <C> <C>
Service Revenues $ 44,581 100.0% $40,487 100.0%
-------- ------ ------- -----
Operating Expenses:
Operating, general and administrative 22,365 50.2 20,665 51.0
Depreciation and amortization 18,877 42.3 15,218 37.6
Management and financial advisory service
fees - related parties 1,359 3.1 1,331 3.3
-------- ------ ------- -----
42,601 95.6 37,214 91.9
-------- ------ ------- -----
Income from operations 1,980 4.4 3,273 8.1
-------- ------ ------- -----
Other Income (Expense):
Interest income 93 .2 1 --
Interest expense (13,219) (29.6) (12,894) (31.8)
Other, net -- -- 57 .1
-------- ------ ------- -----
(13,126) (29.4) (12,836) (31.7)
-------- ------ ------- -----
(11,146) (25.0) (9,563) (23.6)
Equity in loss of unconsolidated limited
partnerships (2,760) (6.2) (1,910) (4.7)
Provision for income taxes -- -- -- --
Minority interest in loss of subsidiary 3,249 7.3 2,715 6.7
-------- ------ ------- -----
Net loss $(10,657) (23.9)% (8,758) (21.6)%
======== ====== ======= =====
</TABLE>
13
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Service Revenues
The Company earns substantially all of its revenues from monthly subscription
fees for basic tier, expanded tier, premium channels, equipment rental and
ancillary services provided by its cable television systems. Service revenues
increased by 10.1% to $44.6 million, for the three month period ended March 31,
1998, when compared to the similar period of 1997. This increase in 1998 is
primarily due to an increase in subscribers for the basic tier of cable service
offered by the systems. The Company experienced significant internal subscriber
growth of approximately 4.1% between periods and implemented basic and expanded
tier retail rate increases in certain systems, in accordance with federal law.
The internal subscriber growth reflects the success of management's marketing
efforts to add new customers and retain existing customers, as well as improved
customer service. In addition, a limited amount of new-build construction
increased the coverage of the systems.
Premium service revenue has increased between comparable periods as a result of
the increase in the number of premium service subscriptions being subscribed to
by the Company's basic subscribers. This increase is due to the Company's
increased use of packaging multiple premium subscriptions to its subscribers and
the introduction of a new premium service to customers in Connecticut.
Operating Expenses
Operating, general and administrative costs increased by 8.2% to $22.4 million
for the three months ended March 31, 1998 when compared to the similar period of
1997. These increases are also related to increases in programming costs, as
many of the Company's programming contracts had rate increases effective during
the first quarter of 1998. The Company expects that programming cost increases
will continue to be an on-going issue for the next several years. Operating
margin, or EBITDA, calculated as service revenues less operating, general and
administrative expenses, rose approximately 1.8% to 49.8% for the three month
period ended March 31, 1998, respectively, versus the same period for the prior
year.
Depreciation and amortization increased by 24.0% to $18.9 million for the three
months ended March 31, 1998, when compared to the similar period of 1997. The
increase in depreciation and amortization is a result of the decrease in the
useful life used to calculate depreciation. Depreciation and amortization
expense as a percent of revenues increased during the three months ended March
31, 1998 compared to the similar period of 1997. This decrease is due primarily
to a reduction in the estimated useful life of certain assets.
Other Income / Expense
Interest expense increased by 2.5% to $13.2 million for the three months ended
March 31, 1998, when compared to the similar period of 1997. This increase is
primarily due to the increase in the average outstanding debt balance between
the comparable periods.
Equity in Loss of Unconsolidated Limited Partnerships
Equity in loss of unconsolidated limited partnerships pertains to the Company's
share of losses in Charter Communications Entertainment I, L.P. and Charter
Communications Entertainment II, L.P. ("CCE-II"). The Company maintains a 55%
investment in both of these entities. Equity in loss of unconsolidated limited
partnerships increased by 44.5% to $2.8 million for the three months ended March
31, 1998, primarily due to the increased net loss of CCE-II.
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<PAGE> 15
Net Loss
Net loss increased by 21.7% to $10.7 million for the three months ended March
31, 1998 when compared to the similar period of 1997. For the three months ended
March 31, 1998, significant factors versus the prior year were increases in
depreciation & amortization expenses.
15
<PAGE> 16
Liquidity and Capital Resources
The Company's historical growth was funded primarily by borrowings under bank
credit facilities, seller financing arrangements, and equity contributions. Cash
flows provided by operating activities together with borrowings under its bank
credit facility have been sufficient to fund the Company's debt service, capital
expenditures and working capital requirements. Future cash flows provided by
operating activities and availability for borrowings under the existing credit
facilities are anticipated to be sufficient during the next 12 months for the
Partnership's ongoing debt service, capital expenditures and working capital
needs. The Company anticipates that future acquisitions, if any, could be
financed through borrowings, either presently available under the existing
credit facilities, or as a result of amending the existing credit facilities to
allow for expanded borrowing capacity, combined with additional equity
contributions. Although to date the Company has been able to obtain financing on
satisfactory terms, there can be no assurance that this will continue to be the
case in the future and, thereby, could negatively impact the Company's ability
to pursue a strategy that includes growth through acquisitions.
At March 31, 1998, the Company's outstanding long-term debt (including current
maturities) was $582.3 million, consisting of $459.5 million outstanding under
the revolving credit and term loan facility, $82.0 million outstanding for the
Senior Subordinated Notes due 1999 (the "Notes"), and $40.8 million of accrued
interest on the Notes. The Company had unused and available borrowing capacity
of $27.1 million under the credit facility at March 31, 1998. Cash interest is
payable on a monthly and quarterly basis for borrowings under the credit
facility. Cash interest on the Notes is payable on December 31, 1999, the stated
maturity date.
The Company manages risk arising from fluctuations in interest rates through the
use of interest rate swap and cap agreements required under the terms of the
existing credit facility. Interest rate swap and cap agreements are accounted
for by the Company as a hedge of the debt obligation. As a result, the net
settlement amount of any such swap or cap is recorded as interest expense in the
period incurred. The affects of the Company's hedging practices on its weighted
average borrowing rate and on reported interest expense were not material for
the three months ended March 31, 1998.
The Company incurred capital expenditures of approximately $12.1 million during
the three months ended March 31, 1998, respectively, in connection with the
improvement and upgrading of the Company's cable systems. The majority of these
expenditures were incurred by the St. Louis and western Connecticut systems as
each system is upgrading its cable television plant. The Company anticipates
that capital expenditures will be approximately $60 million to $65 million
during 1998.
The Company has insurance covering risks incurred in the ordinary course of
business, including general liability, property and business interruption
coverage. As is typical in the cable television industry, the Company does not
maintain insurance covering its underground plant, the cost of which management
believes is currently prohibitive. Management believes that the Company's
insurance coverage is adequate, and intends to monitor the insurance markets to
attempt to obtain coverage for the Company's underground plants at reasonable
and cost-effective rates.
The Company believes that it has generally complied with the provisions of the
1992 Act regarding cable programming service rates. However, some systems may be
charging rates which are in excess of allowable rates and, accordingly, may be
subject to challenge by regulatory authorities, such challenge may result in the
Partnership being required to make refunds to subscribers. The amount of
refunds, if any, which could be payable by the Company in the event such
systems' rates are successfully challenged by regulatory authorities is not
currently estimable. The Company has not reserved any amounts for payment of
such refunds as the General Partner does not believe that the amounts of any
such refunds would have a material adverse effect on the financial position or
results of the Company.
16
<PAGE> 17
Year 2000 Impact
As of the quarter ended March 31, 1998, the Company is engaged in a process to
identify and address issues surrounding the Year 2000 and its impact on the
Company's operations. The issue surrounding the Year 2000 is whether the
computer systems, software and all equipment using a computer chip will properly
recognize date sensitive information when the year changes to 2000, or "00".
Computerized systems that do not properly recognize such information could
generate erroneous data or cause a system to fail. This issue impacts the
Company as to its owned or licensed computer systems and equipment used in
connection with internal operations, including systems, software and equipment
supplied by vendors and third party service providers. The Company may also be
affected by virtue of its external dealings with third parties in the regular
course of business. As management of the Company has not completed its initial
assessment of the impact the Year 2000 may have on the Company's operations, it
cannot estimate the costs associated with ensuring the Company's operations are
Year 2000 compliant. The Company is in the initial phases of determining the
impact of the Year 2000, and management anticipates completion of the project by
December 1998, allowing adequate time for testing. However, there can be no
assurance that the Company's operations nor the computer systems of other
companies with whom the Company conducts business will be Year 2000 compliant
prior to December 31, 1999. If such modifications and conversions are not
completed timely, the Year 2000 problem may have a material impact on the
operation of the Company.
17
<PAGE> 18
Part II. Other Information
Item 1. Legal Proceedings
CCE-I is a named defendant in a purported class action lawsuit (the "Action")
filed in October 1995 on behalf of the Cencom Cable Income Partners, L.P. (CCIP)
limited partners. The Action named as defendants the general partner of CCIP,
the purchasers of all the systems previously owned by CCIP (which includes CCE-I
and certain other entities managed by Charter), Charter and certain individuals,
including the directors and executive officers of the general partner of CCIP.
On February 15, 1996, all of the plaintiff's claims for injunctive relief were
dismissed (including that which sought to prevent the consummation of the CCIP
Acquisition); the plaintiff's claims for money damages which may have resulted
from the CCIP Acquisition remain pending. Based upon, among other things, the
advice of counsel, each of the defendants in the Action believe the Action to be
without merit and is contesting it vigorously. In October 1996, the plaintiff
filed a Consolidated Amended Class Action Complaint (the "Amended Complaint").
The general partner of CCIP believed that portions of the Amended Complaint are
legally inadequate and in January 1997, filed a dispositive motion as to all
remaining claims in the Action. In October 1997, the court granted in part, and
denied in part, defendants motion for summary judgment, the effect of which
narrowed the remaining issues significantly. The plaintiffs filed a motion to
alter or amend the court order. There can be no assurance, however, that the
plaintiff will not be awarded damages in connection with the Action, some or all
of which may be payable by CCE-I.
CCE is a named defendant in two actions involving Cencom Cable Income Partners
II, L.P. (CCIP II), a public limited partnership. In April 1997, a petition was
filed, and two amended petitions subsequently filed, by plaintiffs who are
limited partners of CCIP II against Cencom Properties II, Inc., the general
partner of CCIP II, Cencom Partners, Inc., the general partner of Cencom
Partners, L.P. (CPLP), an entity in which CCIP II invested, certain named
brokerage firms involved in the original sale of the limited partnership units
and CCE. CCE provided management services to both CCIP II and CPLP and also
owned all of the stock of the general partners of each of these partnerships
prior to mid-1994. The plaintiffs allege that the defendants breached fiduciary
duties and the terms of the CCIP II partnership agreement in connection with the
investment in CPLP, the management of certain CCIP II assets and the sale of
certain CCIP II assets. By an agreement between the parties, the brokerage
defendants and fraud allegations were dismissed without prejudice. The
plaintiffs seek recovery of the consideration paid for their partnership units,
restitution of all profits received by the defendants in connection with the
CCIP II transaction and punitive damages. In June 1997, a purported class action
was filed on behalf of the partners of CCIP II against Cencom Properties II,
CCE, Charter, certain other entities managed by Charter and certain individuals,
including officers of Charter or Cencom Properties II. The plaintiffs allege
that the defendants breached fiduciary duties and the terms of the CCIP II
partnership agreement in connection with the investment in CPLP, the management
of certain CCIP II assets and the sale of certain CCIP II assets. In November
1997, the plaintiffs amended their complaint to restate their allegations as a
shareholders' derivative claim. The damages claimed by the plaintiffs are as yet
unspecified. CCE believes that it has meritorious defenses in both actions and
intends to defend the actions vigorously. CCE is not able at this stage to
project the expenses which will be associated with the actions or to predict any
potential outcome or financial impact.
In October 1997, a purported class action was filed under the name Gerald
Ortbals v. Charter Communications, on behalf of all persons residing in Missouri
who are or were residential subscribers of CCE-I cable television service, and
who have been charged a processing fee for delinquent payment of their cable
bill. The action challenges the legality of CCE-I's processing fee and seeks
declaratory judgment, injunctive relief and unspecified damages. CCE-I believes
the lawsuit to be without merit and intends to defend the action vigorously.
CCE-I is not able, at this early stage, to project the expenses which will be
associated with this action or to predict any potential outcome or financial
impact.
The Company is also a party to lawsuits which are generally incidental to its
business. In the opinion of management, after consulting with legal counsel, the
outcome of these lawsuits will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
18
<PAGE> 19
Item 2. Change in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
10.22 Consolidated financial statements of CCA Acquisition
Corp. as of and for the three months ended March 31, 1998
and 1997
10.23 Financial statements of Cencom Cable Entertainment, Inc.,
as of and for the three months ended March 31, 1998 and
1997
10.24 Financial statements of Charter Communications
Entertainment, L.P. as of and for the three months ended
March 31, 1998 and 1997
27 Financial Data Schedule
B. Reports on form 8-K - None
19
<PAGE> 20
CCA HOLDINGS CORP.
FOR THE QUARTER ENDED MARCH 31, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CCA HOLDINGS CORP.
By: /s/ Jerald L. Kent
----------------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Jerald L. Kent May 14, 1998
--------------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Kent D. Kalkwarf May 14, 1998
--------------------------
Kent D. Kalkwarf
Senior Vice President and
Chief Financial Officer
20
<PAGE> 1
EXHIBIT 10.22
CCA ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<PAGE> 2
CCA ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 580,306 $ 2,595,272
Accounts receivable, net of allowance for doubtful accounts of
$467,033 and $454,097, respectively 4,722,532 5,305,049
Prepaid expenses and other 883,246 754,073
------------ -------------
Total current assets 6,186,084 8,654,394
------------ -------------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, net 206,371,820 204,645,667
Franchise costs, net of accumulated amortization of $95,972,743 and
$87,601,155, respectively 407,052,272 414,800,499
------------ -------------
613,424,092 619,446,166
------------ -------------
OTHER ASSETS, net 9,482,132 10,472,734
------------ -------------
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS 65,053,843 67,814,141
------------ -------------
$694,146,151 $ 706,387,435
============ =============
</TABLE>
(Continued on the following page)
2
<PAGE> 3
CCA ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDER'S INVESTMENT (DEFICIT)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $27,725,000 $ 25,625,000
Accounts payable and accrued expenses 23,812,209 23,309,249
Subscriber deposits and prepayments 443,633 452,642
Payables to manager of cable television systems 726,217 956,136
------------ -------------
Total current liabilities 52,707,059 50,343,027
------------ -------------
DEFERRED REVENUE 2,345,658 1,465,287
------------ -------------
DEFERRED INCOME TAXES 55,500,000 55,500,000
------------ -------------
LONG-TERM DEBT, less current maturities 431,788,750 437,295,000
------------ -------------
DEFERRED MANAGEMENT FEES 4,036,987 4,036,987
------------ -------------
NOTES PAYABLE 82,000,000 82,000,000
------------ -------------
ACCRUED INTEREST ON NOTES PAYABLE 40,784,293 36,919,412
------------ -------------
MINORITY INTEREST IN SUBSIDIARY 74,833,676 78,082,289
------------ -------------
SHAREHOLDER'S INVESTMENT (DEFICIT):
Common stock, $.01 par value, 100 shares authorized; 100 shares issued and
outstanding 1 1
Additional paid-in capital 79,999,999 79,999,999
Accumulated deficit (129,850,272) (119,254,567)
------------ -------------
Total shareholder's investment (deficit) (49,850,272) (39,254,567)
------------ -------------
$694,146,151 $ 706,387,435
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE> 4
CCA ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SERVICE REVENUES:
Basic service $30,121,877 $27,109,207
Premium service 4,852,505 5,002,997
Other 9,606,396 8,374,530
----------- -----------
44,580,778 40,486,734
----------- -----------
EXPENSES:
Operating, general and administrative 22,303,034 20,542,573
Depreciation and amortization 18,877,166 15,218,022
Management and financial advisory service fees - related parties 1,359,421 1,331,232
----------- -----------
42,539,621 37,091,827
----------- -----------
Income from operations 2,041,157 3,394,907
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 93,110 1,154
Interest expense (13,218,287) (12,894,299)
Other -- 56,921
----------- -----------
(13,125,177) (12,836,224)
----------- -----------
Loss before equity in loss of unconsolidated limited partnerships,
provision for income taxes and minority interest in loss of
subsidiary (11,084,020) (9,441,317)
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS (2,760,298) (1,909,926)
----------- -----------
Loss before provision for income taxes and minority interest in loss
of subsidiary (13,844,318) (11,351,243)
PROVISION FOR INCOME TAXES -- --
----------- -----------
Loss before minority interest in loss of subsidiary (13,884,318) (11,351,243)
MINORITY INTEREST IN LOSS OF SUBSIDIARY 3,248,613 2,715,214
----------- -----------
Net loss (10,595,705) (8,636,029)
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
CCA ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S INVESTMENT (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
------ --------- ----------- -----
<S> <C>
BALANCE, December 31, 1997 $ 1 $ 79,999,999 $(119,254,567) $ (39,254,567)
Net loss -- -- (10,595,705) (10,595,705)
--- ------------ ------------- -------------
BALANCE, March 31, 1998 $ 1 $ 79,999,999 $(129,850,272) $ (49,850,272)
=== ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
CCA ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(10,595,705) $(8,636,029)
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization 18,877,166 15,218,022
Amortization of debt issuance costs 305,267 279,234
Equity in loss of unconsolidated limited partnerships 2,760,298 1,909,926
Minority interest in loss of subsidiary (3,248,613) (2,715,214)
Changes in assets and liabilities, net of effects from acquisitions-
Accounts receivable, net 582,517 1,252,165
Prepaid expenses and other (129,173) (411,422)
Other assets -- (67,772)
Accounts payable and accrued expenses 502,960 (4,285,563)
Subscriber deposits (9,009) 16,832
Payables to manager of cable television systems, including deferred
management fees (229,919) (97,490)
Deferred revenue 880,371 351,895
Accrued interest on note payable 3,864,881 3,407,508
------------ -----------
Net cash provided by operating activities 13,561,041 6,222,092
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,075,285) (7,964,230)
Payments of organizational expenses (56,972) --
Payments of franchise costs (37,500) (175,273)
------------ -----------
Net cash used in investing activities $(12,169,757) $(8,139,503)
------------ -----------
</TABLE>
(Continued on the following page)
6
<PAGE> 7
CCA ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit and term loan facility $ 4,500,000 $ 3,700,000
Payments under revolving credit and term loan facility (7,906,250) (3,700,000)
------------- -------------
Net cash used in financing activities $ (3,406,250) $ --
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,014,966) (1,917,411)
CASH AND CASH EQUIVALENTS, beginning of period 2,595,272 2,934,939
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 580,306 $ 1,017,528
============= =============
CASH PAID FOR INTEREST $ 8,021,758 $ 7,657,603
============= =============
CASH PAID FOR TAXES $ - $ -
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE> 8
CCA ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
CCA Acquisition Corp. (CAC), a Delaware corporation, was formed on June 27,
1994, and is a wholly-owned subsidiary of CCA Holdings Corp. (CCA Holdings). CAC
commenced operations in January 1995 in connection with consummation of the
Crown Transaction (as defined below). The accompanying consolidated financial
statements include the accounts of CAC; its wholly-owned subsidiary, Cencom
Cable Entertainment, Inc. (CCE); and Charter Communications Entertainment I,
L.P. (CCE-I), which is controlled by CAC through its general partnership
interest (collectively referred to as the "Company"). CCA Holdings is owned
approximately 85% by Kelso Investment Associates V, L.P., an investment fund,
together with an affiliate (collectively referred to as "Kelso" herein) and
certain other individuals and approximately 15% by Charter Communications, Inc.
(Charter), manager of CCE-I's cable television systems. All material
intercompany transactions and balances have been eliminated.
In January 1995, CAC completed the acquisition of certain cable television
systems from Crown Media, Inc. (Crown), a subsidiary of Hallmark Cards,
Incorporated (Hallmark) (the "Crown Transaction"). On September 29, 1995, CAC
and CCT Holdings Corp. (CCT Holdings), an entity affiliated with CCA Holdings by
common ownership, entered into an Asset Exchange Agreement whereby CAC exchanged
a 1% undivided interest in all of its assets for a 1.22% undivided interest in
certain assets to be acquired by CCT Holdings from an affiliate of Gaylord
Entertainment Company, Inc. (Gaylord). Effective September 30, 1995, CCT
Holdings acquired certain cable television systems from Gaylord. Upon execution
of the Asset Purchase Agreement, CAC and CCT Holdings entered into a series of
agreements to contribute the assets acquired under the Crown Transaction to
CCE-I and certain assets acquired in the Gaylord acquisition to Charter
Communications Entertainment II, L.P. (CCE-II). As a result of entering into
these agreements, CAC owns a 55% interest and CCT Holdings owns a 45% interest
in the operations of CCE-I and CCE-II, respectively. CAC's investment in CCE-II
is accounted for by the equity method.
The accompanying unaudited financial statements of CAC have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements are unaudited; however, in the opinion of
management, such statements include all adjustments necessary for a fair
presentation of the results for the periods presented. The interim financial
statements should be read in conjunction with the financial statements and notes
thereto as of and for the year ended December 31, 1997. Interim results are not
necessarily indicative of results for a full year.
8
<PAGE> 9
3. INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS:
Summary financial information of CCE-II for the three months ended March 31,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
--------- ---------
1998 1997
---- ----
<S> <C> <C>
Service revenues $ 24,544,816 $ 22,669,563
Income(loss) from operations (663,180) 582,859
Net loss $(5,018,723) $ (3,472,593)
</TABLE>
As of March 31, 1998, CCE-II provided cable television service to approximately
173,200 basic subscribers in southern California.
4. LITIGATION:
CCE-I is a named defendant in a purported class action lawsuit (the "Action")
filed in October 1995 on behalf of the Cencom Cable Income Partners, L.P. (CCIP)
limited partners. The Action named as defendants the general partner of CCIP,
the purchasers of all the systems previously owned by CCIP (which includes CCE-I
and certain other entities managed by Charter), Charter and certain individuals,
including the directors and executive officers of the general partner of CCIP.
On February 15, 1996, all of the plaintiff's claims for injunctive relief were
dismissed (including that which sought to prevent the consummation of the CCIP
Acquisition); the plaintiff's claims for money damages which may have resulted
from the CCIP Acquisition remain pending. Based upon, among other things, the
advice of counsel, each of the defendants in the Action believe the Action to be
without merit and is contesting it vigorously. In October 1996, the plaintiff
filed a Consolidated Amended Class Action Complaint (the "Amended Complaint").
The general partner of CCIP believed that portions of the Amended Complaint are
legally inadequate and in January 1997, filed a dispositive motion as to all
remaining claims in the Action. In October 1997, the court granted in part, and
denied in part, defendants motion for summary judgment, the effect of which
narrowed the remaining issues significantly. The plaintiffs filed a motion to
alter or amend the court order. There can be no assurance, however, that the
plaintiff will not be awarded damages in connection with the Action, some or all
of which may be payable by CCE-I.
CCE is a named defendant in two actions involving Cencom Cable Income Partners
II, L.P. (CCIP II), a public limited partnership. In April 1997, a petition was
filed, and two amended petitions subsequently filed, by plaintiffs who are
limited partners of CCIP II against Cencom Properties II, Inc., the general
partner of CCIP II, Cencom Partners, Inc., the general partner of Cencom
Partners, L.P. (CPLP), an entity in which CCIP II invested, certain named
brokerage firms involved in the original sale of the limited partnership units
and CCE. CCE provided management services to both CCIP II and CPLP and also
owned all of the stock of the general partners of each of these partnerships
prior to mid-1994. The plaintiffs allege that the defendants breached fiduciary
duties and the terms of the CCIP II partnership agreement in connection with the
investment in CPLP, the management of certain CCIP II assets and the sale of
certain CCIP II assets. By an agreement between the parties, the brokerage
defendants and fraud allegations were dismissed without prejudice. The
plaintiffs seek recovery of the consideration paid for their partnership units,
restitution of all profits received by the defendants in connection with the
CCIP II transaction and punitive damages. In June 1997, a purported class action
was filed on behalf of the partners of CCIP II against Cencom Properties II,
CCE, Charter, certain other entities managed by Charter and certain individuals,
including officers of Charter or Cencom Properties II. The plaintiffs allege
that the defendants breached fiduciary duties and the terms of the CCIP II
partnership agreement in connection with the investment in CPLP, the management
of certain CCIP II assets and the sale of certain CCIP II assets. In November
1997, the plaintiffs amended their complaint to restate their allegations as a
shareholders' derivative claim. The damages claimed by the plaintiffs are as yet
unspecified. CCE believes that it has meritorious defenses in both actions and
intends to defend the actions vigorously. CCE is not able at this stage to
project the expenses which will be associated with the actions or to predict any
potential outcome or financial impact. In October 1997, a purported class action
was filed under the name Gerald Ortbals v. Charter Communications, on behalf of
all persons residing in Missouri who are or were residential subscribers of
CCE-I cable television service, and who have been charged a processing fee for
delinquent payment of their cable bill. The action challenges the legality of
CCE-
9
<PAGE> 10
I's processing fee and seeks declaratory judgment, injunctive relief and
unspecified damages. CCE-I believes the lawsuit to be without merit and intends
to defend the action vigorously. CCE-I is not able, at this early stage, to
project the expenses which will be associated with this action or to predict any
potential outcome or financial impact.
The Company is also a party to lawsuits which are generally incidental to its
business. In the opinion of management, after consulting with legal counsel, the
outcome of these lawsuits will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
10
<PAGE> 1
EXHIBIT 10.23
CENCOM CABLE ENTERTAINMENT, INC.
FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<PAGE> 2
CENCOM CABLE ENTERTAINMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIP $104,693,830 $108,478,907
------------ ------------
$104,693,830 $108,478,907
============ ============
LIABILITIES AND SHAREHOLDER'S INVESTMENT (DEFICIT)
NOTES PAYABLE $ 82,000,000 $ 82,000,000
ACCRUED INTEREST ON NOTES PAYABLE 40,784,293 36,919,412
DEFERRED INCOME TAXES 55,500,000 55,500,000
SHAREHOLDER'S INVESTMENT (DEFICIT):
Common stock, $1 par value, 300,000 shares authorized; 245,973 shares issued
and outstanding 245,973 245,973
Additional paid-in capital 21,954,139 21,954,139
Accumulated deficit (95,790,575) (88,140,617)
------------ ------------
Total shareholder's investment (deficit) (73,590,463) (65,940,505)
------------ ------------
$104,693,830 $108,478,907
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE> 3
CENCOM CABLE ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIP $(3,785,077) $(2,906,593)
INTEREST EXPENSE (3,864,881) (3,407,508)
----------- -----------
Net loss $(7,649,958) $(6,314,101)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
CENCOM CABLE ENTERTAINMENT, INC.
STATEMENT OF SHAREHOLDER'S INVESTMENT (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
----- ------- ------- -----
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 $245,973 $21,954,139 $(88,140,617) $(65,940,505)
Net loss -- -- (7,649,958) (7,649,958)
-------- ----------- ------------ ------------
BALANCE, March 31, 1998 $245,973 $21,954,139 $(95,790,575) $(73,590,463)
======== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
CENCOM CABLE ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(7,649,958) $(6,314,101)
Adjustments to reconcile net loss to net cash provided by operating activities-
Equity in loss of unconsolidated limited partnerships 3,785,077 2,906,593
Changes in assets and liabilities-
Accrued interest on note payable 3,864,881 3,407,508
----------- -----------
Net cash provided by operating activities -- --
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES: -- --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES: -- --
----------- -----------
CASH, beginning and end of period $ -- $ --
=========== ===========
CASH PAID FOR INTEREST $ $
-- --
=========== ===========
CASH PAID FOR TAXES $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
CENCOM CABLE ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Cencom Cable Entertainment, Inc. (CCE), a Delaware corporation, is a wholly
owned subsidiary of CCA Acquisition Corp. (CAC). CAC is a wholly owned
subsidiary of CCA Holdings Corp. (CCA Holdings). CCA Holdings is owned
approximately 85% by Kelso Investment Associated V, L.P., an investment fund,
together with an affiliate (collectively referred to as "Kelso" herein) and
certain other individuals, and approximately 15% by Charter Communications, Inc.
("Charter"), manager of Charter Communications Entertainment I, L.P.'s (CCE-I)
and Charter Communications Entertainment II, L.P.'s (CCE-II) cable television
systems.
In January 1995, CAC completed certain acquisitions, including stock and asset
acquisitions of CCE and cable television systems located in Connecticut from
Crown Media, Inc., a subsidiary of Hallmark Cards, Incorporated (the "Crown
Transaction"). CCE's assets were comprised primarily of cable television systems
serving communities in St. Louis County, Missouri (the "Missouri System"). On
September 29, 1995, CAC and CCT Holdings Corp. (CCT Holdings), an entity
affiliated with CCA Holdings by common ownership, entered into an Asset Exchange
Agreement whereby CAC exchanged a 1% undivided interest in all of its assets
(including CCE's assets) for a 1.22% undivided interest in certain assets to be
acquired by CCT Holdings from an affiliate of Gaylord Entertainment Company,
Inc. (Gaylord). In September 1995, CCT Holdings acquired certain cable
television systems from Gaylord. Upon execution of the Asset Purchase Agreement,
CAC and CCT Holdings entered into a series of agreements to contribute their
assets to Charter Communications Entertainment, L.P. (CCE, L.P.). CCE, L.P.
immediately contributed the assets acquired under the Crown Transaction to CCE-I
and certain assets acquired in the Gaylord acquisition to CCE-II.
The series of transactions representing the contribution of assets to CCE-I
acquired under the Crown Transaction is a reorganization of entities under
common control and has been accounted for in a manner similar to a pooling of
interests. Accordingly, CCE-I's financial statements reflect the activity of
these systems for the entire year.
As a result of these transactions, CCE owns a 33% limited partnership interest
in CCE, L.P., CAC owns a 21% limited partnership in CCE, L.P. and CCT Holdings
owns a 44% limited partnership interest in CCE, L.P. In addition, CAC and CCT
Holdings each own a 1% general partnership interest in CCE, L.P.
The accompanying unaudited financial statements of CCE have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The financial statements are unaudited; however, in the opinion of management,
such statements include all adjustments necessary for a fair presentation of the
financial position and results of operations for the periods presented. These
financial statements should be read in conjunction with the financial statements
and notes thereto as of and for the year ended December 31, 1997. Interim
results are not necessarily indicative of results for a full year.
6
<PAGE> 7
3. LITIGATION:
CCE-I is a named defendant in a purported class action lawsuit (the "Action")
filed in October 1995 on behalf of the Cencom Cable Income Partners, L.P. (CCIP)
limited partners. The Action named as defendants the general partner of CCIP,
the purchasers of all the systems previously owned by CCIP (which includes CCE-I
and certain other entities managed by Charter), Charter and certain individuals,
including the directors and executive officers of the general partner of CCIP.
On February 15, 1996, all of the plaintiff's claims for injunctive relief were
dismissed (including that which sought to prevent the consummation of the CCIP
Acquisition); the plaintiff's claims for money damages which may have resulted
from the CCIP Acquisition remain pending. Based upon, among other things, the
advice of counsel, each of the defendants in the Action believe the Action to be
without merit and is contesting it vigorously. In October 1996, the plaintiff
filed a Consolidated Amended Class Action Complaint (the "Amended Complaint").
The general partner of CCIP believed that portions of the Amended Complaint are
legally inadequate and in January 1997, filed a dispositive motion as to all
remaining claims in the Action. In October 1997, the court granted in part, and
denied in part, defendants motion for summary judgment, the effect of which
narrowed the remaining issues significantly. The plaintiffs filed a motion to
alter or amend the court order. There can be no assurance, however, that the
plaintiff will not be awarded damages in connection with the Action, some or all
of which may be payable by CCE-I.
CCE is a named defendant in two actions involving Cencom Cable Income Partners
II, L.P. (CCIP II), a public limited partnership. In April 1997, a petition was
filed, and two amended petitions subsequently filed, by plaintiffs who are
limited partners of CCIP II against Cencom Properties II, Inc., the general
partner of CCIP II, Cencom Partners, Inc., the general partner of Cencom
Partners, L.P. (CPLP), an entity in which CCIP II invested, certain named
brokerage firms involved in the original sale of the limited partnership units
and CCE. CCE provided management services to both CCIP II and CPLP and also
owned all of the stock of the general partners of each of these partnerships
prior to mid-1994. The plaintiffs allege that the defendants breached fiduciary
duties and the terms of the CCIP II partnership agreement in connection with the
investment in CPLP, the management of certain CCIP II assets and the sale of
certain CCIP II assets. By an agreement between the parties, the brokerage
defendants and fraud allegations were dismissed without prejudice. The
plaintiffs seek recovery of the consideration paid for their partnership units,
restitution of all profits received by the defendants in connection with the
CCIP II transaction and punitive damages. In June 1997, a purported class action
was filed on behalf of the partners of CCIP II against Cencom Properties II,
CCE, Charter, certain other entities managed by Charter and certain individuals,
including officers of Charter or Cencom Properties II. The plaintiffs allege
that the defendants breached fiduciary duties and the terms of the CCIP II
partnership agreement in connection with the investment in CPLP, the management
of certain CCIP II assets and the sale of certain CCIP II assets. In November
1997, the plaintiffs amended their complaint to restate their allegations as a
shareholders' derivative claim. The damages claimed by the plaintiffs are as yet
unspecified. CCE believes that it has meritorious defenses in both actions and
intends to defend the actions vigorously. CCE is not able at this stage to
project the expenses which will be associated with the actions or to predict any
potential outcome or financial impact.
In October 1997, a purported class action was filed under the name Gerald
Ortbals v. Charter Communications, on behalf of all persons residing in Missouri
who are or were residential subscribers of CCE-I cable television service, and
who have been charged a processing fee for delinquent payment of their cable
bill. The action challenges the legality of CCE-I's processing fee and seeks
declaratory judgment, injunctive relief and unspecified damages. CCE-I believes
the lawsuit to be without merit and intends to defend the action vigorously.
CCE-I is not able, at this early stage, to project the expenses which will be
associated with this action or to predict any potential outcome or financial
impact.
The Company is also a party to lawsuits which are generally incidental to its
business. In the opinion of management, after consulting with legal counsel, the
outcome of these lawsuits will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
7
<PAGE> 1
EXHIBIT 10.24
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<PAGE> 2
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ --------------
(Unaudited)
ASSETS
<S> <C> <C>
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS $223,166,061 $ 235,132,242
SUBORDINATED NOTE RECEIVABLE FROM UNCONSOLIDATED LIMITED PARTNERSHIP
25,000,000 25,000,000
INTEREST RECEIVABLE FROM UNCONSOLIDATED LIMITED PARTNERSHIP
4,899,250 4,403,000
------------ -------------
$253,065,311 $ 264,535,242
============ =============
LIABILITIES AND PARTNERS' CAPITAL
NOTES PAYABLE $ 82,000,000 $ 82,000,000
ACCRUED INTEREST ON NOTES PAYABLE 40,784,293 36,919,412
PARTNERS' CAPITAL:
General partners (5,038,472) (3,836,797)
Limited partners-
Ordinary Capital Accounts (85,042,878) (64,759,988)
Preferred Capital Account 220,362,368 214,212,615
------------ -------------
Total partners' capital 130,281,018 145,615,830
------------ -------------
$253,065,311 $ 264,535,242
============ =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE> 3
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS $(11,966,181) $ (9,295,359)
INTEREST EXPENSE (3,64,881) (3,407,508)
INTEREST INCOME - UNCONSOLIDATED LIMITED PARTNERSHIP 496,250 487,500
------------ --------------
Net loss $(15,334,812) $ (12,215,367)
============ ==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Limited Partners
-----------------------------
Ordinary Preferred
General Capital Capital
Partners Accounts Account Total
-------- -------- ------- -----
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ (3,836,797) $ (64,759,988) $ 214,212,615 $ 145,615,830
Net loss (857,707) (14,477,105) -- (15,334,812)
Preference allocation (343,968) (5,805,785) 6,149,753 --
------------- ------------- ------------- -------------
BALANCE, March 31, 1998 $ (5,038,472) $ (85,042,878) $ 220,362,368 $ 130,281,018
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(15,334,812) $(12,215,367)
Adjustments to reconcile net loss to net cash provided by operating activities-
Equity in loss of unconsolidated limited partnerships 11,966,181 9,295,359
Changes in assets and liabilities-
Interest receivable from unconsolidated limited partnership (496,250) (487,500)
Accrued interest on note payable 3,864,881 3,407,508
------------ ------------
Net cash provided by operating activities -- --
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES: -- --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES: -- --
------------ ------------
CASH, beginning and end of period $ -- $ --
============ ============
CASH PAID FOR INTEREST $ -- $ --
============ ============
CASH PAID FOR TAXES $ -- $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
In September 1995, the assets of certain cable television systems purchased in
January 1995 were contributed from CCA Acquisition Corp. (CAC) and its wholly
owned subsidiary, Cencom Cable Entertainment, Inc., (CCE), respectively, to
Charter Communications Entertainment, L.P. (the "Partnership"). CAC and CCE
owned and operated the systems during the first nine months of 1995. These
systems were contributed to a newly formed partnership, Charter Communications
Entertainment I, L.P. (CCE-I). The Partnership, CAC, CCE and CCE-I are all
indirectly owned approximately 85% by Kelso Investment Associated V, L.P., an
investment fund, together with an affiliate (collectively referred to as "Kelso"
herein) and certain other individuals, and approximately 15% by Charter
Communications, Inc. (Charter). Therefore, this series of transactions is a
reorganization under common control and has been accounted for in a manner
similar to a pooling of interests. Accordingly, the financial statements reflect
the activity of these systems for the entire year.
In January 1995, CAC completed the acquisition of certain cable television
systems from Crown Media, Inc. (Crown), a subsidiary of Hallmark Cards,
Incorporated ("Hallmark") (the "Crown Transaction"). On September 29, 1995, CAC
and CCT Holdings Corp. (CCT Holdings), an entity affiliated with CCA Holdings
Corp. ("CCA Holdings") by common ownership, entered into an Asset Exchange
Agreement whereby CAC exchanged a 1% undivided interest in all of its assets for
a 1.22% undivided interest in certain assets to be acquired by CCT Holdings from
an affiliate of Gaylord Entertainment Company, Inc. (Gaylord). In September
1995, CCT Holdings acquired certain cable television systems from Gaylord. Upon
execution of the Asset Purchase Agreement, CAC and CCT Holdings entered into a
series of agreements to contribute the assets acquired under the Crown
Transaction to CCE-I and certain assets acquired in the Gaylord acquisition to
Charter Communications Entertainment II, L.P. (CCE-II). As a result of entering
into these agreements, CCA Holdings, the parent company of CAC owns a 55%
interest and CCT Holdings owns a 45% interest in the combined operations of
CCE-I and CCE-II, respectively.
As a result of these transactions, CCE owns a 33% limited partnership interest
in the Partnership, CAC owns a 21% limited partnership interest in the
Partnership and CCT Holdings owns a 44% limited partnership interest in the
Partnership. CAC and CCT Holdings each own a 1% general partnership interest in
the Partnership. The Partnership will terminate no later than December 31, 2055,
as provided in its partnership agreement (the "Partnership Agreement").
The accompanying unaudited financial statements of the Partnership have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
Investment in Unconsolidated Limited Partnerships
The Partnership has a 97.78% limited partnership interest in both CCE-I and
CCE-II. CCE-I is controlled by CAC and CCE-II is controlled by CCT Holdings
through their general partnership interests and provisions within the various
partnership agreements; therefore, the Partnership's investment in these
entities is accounted for using the equity method of accounting. Under this
method, the investments are originally recorded at cost and are subsequently
adjusted to recognized the Partnership's share of net earnings or losses as they
occur and distributions when received.
6
<PAGE> 7
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements are unaudited; however, in the opinion of
management, such statements include all adjustments necessary for a fair
presentation of the results for the periods presented. The interim financial
statements should be read in conjunction with the financial statements and notes
thereto as of and for the year ended December 31, 1997. Interim results are not
necessarily indicative of results for a full year.
3. INVESTMENTS IN UNCONSOLIDATED LIMITED PARTNERSHIPS:
Summary financial information of CCE-I and CCE-II for the three month periods
ended March 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Charter Communications Entertainment I, L.P.
--------------------------------------------
For the Three Months Ended
March 31, March 31,
1998 1997
---- ----
<S> <C> <C>
Service revenues $44,580,778 $40,486,734
Income from operations 2,041,157 3,394,907
Net loss $(7,219,139) $(6,033,809)
<CAPTION>
Charter Communications Entertainment II, L.P.
---------------------------------------------
For the Three Months Ended
March 31, March 31,
1998 1997
---- ----
<S> <C> <C>
Service revenues $24,544,816 $22,669,563
Income (loss) from operations (663,180) 582,859
Net loss $(5,018,723) $(3,472,593)
</TABLE>
As of March 31, 1998, CCE-I provided cable television service to approximately
353,400 basic subscribers in Connecticut, Illinois, Massachusetts, Missouri, and
New Hampshire, and CCE-II provided cable television service to approximately
173,200 basic subscribers in southern California.
4. LITIGATION:
CCE-I is a named defendant in a purported class action lawsuit (the "Action")
filed in October 1995 on behalf of the Cencom Cable Income Partners, L.P. (CCIP)
limited partners. The Action named as defendants the general partner of CCIP,
the purchasers of all the systems previously owned by CCIP (which includes CCE-I
and certain other entities managed by Charter), Charter and certain individuals,
including the directors and executive officers of the general partner of CCIP.
On February 15, 1996, all of the plaintiff's claims for injunctive relief were
dismissed (including that which sought to prevent the consummation of the CCIP
Acquisition); the plaintiff's claims for money damages which may have resulted
from the CCIP Acquisition remain pending. Based upon, among other things, the
advice of counsel, each of the defendants in the Action believe the Action to be
without merit and is contesting it vigorously. In October 1996, the plaintiff
filed a Consolidated Amended Class Action Complaint (the "Amended Complaint").
The general partner of CCIP believed that portions of the Amended Complaint are
legally inadequate and in January 1997, filed a dispositive motion as to all
remaining claims in the Action. In October 1997, the court granted in part, and
denied in part, defendants motion for summary judgment, the effect of which
narrowed the remaining issues significantly. The plaintiffs filed a motion to
alter or amend the court order. There can be no assurance, however, that the
plaintiff will not be awarded damages in connection with the Action, some or all
of which may be payable by CCE-I.
7
<PAGE> 8
CCE is a named defendant in two actions involving Cencom Cable Income Partners
II, L.P. (CCIP II), a public limited partnership. In April 1997, a petition was
filed, and two amended petitions subsequently filed, by plaintiffs who are
limited partners of CCIP II against Cencom Properties II, Inc., the general
partner of CCIP II, Cencom Partners, Inc., the general partner of Cencom
Partners, L.P. (CPLP), an entity in which CCIP II invested, certain named
brokerage firms involved in the original sale of the limited partnership units
and CCE. CCE provided management services to both CCIP II and CPLP and also
owned all of the stock of the general partners of each of these partnerships
prior to mid-1994. The plaintiffs allege that the defendants breached fiduciary
duties and the terms of the CCIP II partnership agreement in connection with the
investment in CPLP, the management of certain CCIP II assets and the sale of
certain CCIP II assets. By an agreement between the parties, the brokerage
defendants and fraud allegations were dismissed without prejudice. The
plaintiffs seek recovery of the consideration paid for their partnership units,
restitution of all profits received by the defendants in connection with the
CCIP II transaction and punitive damages. In June 1997, a purported class action
was filed on behalf of the partners of CCIP II against Cencom Properties II,
CCE, Charter, certain other entities managed by Charter and certain individuals,
including officers of Charter or Cencom Properties II. The plaintiffs allege
that the defendants breached fiduciary duties and the terms of the CCIP II
partnership agreement in connection with the investment in CPLP, the management
of certain CCIP II assets and the sale of certain CCIP II assets. In November
1997, the plaintiffs amended their complaint to restate their allegations as a
shareholders' derivative claim. The damages claimed by the plaintiffs are as yet
unspecified. CCE believes that it has meritorious defenses in both actions and
intends to defend the actions vigorously. CCE is not able at this stage to
project the expenses which will be associated with the actions or to predict any
potential outcome or financial impact.
In October 1997, a purported class action was filed under the name Gerald
Ortbals v. Charter Communications, on behalf of all persons residing in Missouri
who are or were residential subscribers of CCE-I cable television service, and
who have been charged a processing fee for delinquent payment of their cable
bill. The action challenges the legality of CCE-I's processing fee and seeks
declaratory judgment, injunctive relief and unspecified damages. CCE-I believes
the lawsuit to be without merit and intends to defend the action vigorously.
CCE-I is not able, at this early stage, to project the expenses which will be
associated with this action or to predict any potential outcome or financial
impact.
The Company is also a party to lawsuits which are generally incidental to its
business. In the opinion of management, after consulting with legal counsel, the
outcome of these lawsuits will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 580
<SECURITIES> 0
<RECEIVABLES> 5,190
<ALLOWANCES> 467
<INVENTORY> 0
<CURRENT-ASSETS> 6,186
<PP&E> 206,371
<DEPRECIATION> 0
<TOTAL-ASSETS> 694,146
<CURRENT-LIABILITIES> 53,415
<BONDS> 554,573
0
0
<COMMON> 0
<OTHER-SE> (50,558)
<TOTAL-LIABILITY-AND-EQUITY> 694,146
<SALES> 44,581
<TOTAL-REVENUES> 44,581
<CGS> 0
<TOTAL-COSTS> 42,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,218
<INCOME-PRETAX> (13,906)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,906)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,657)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
